A new front opened in the ongoing battle over digital income with a lawsuit filed in New York federal court on Feb. 20 by 19 Recordings against Sony Music. The complaint, which seeks at least $10 million in damages, could have far-reaching implications for the music industry.
19 Recordings was founded by “American Idol” creator Simon Fuller and is now controlled by the show’s owner, Core Media Group. In the lawsuit, 19, and by extension all of the artists — including Kelly Clarkson, Carrie Underwood and Chris Daughtry — who have entered deals with the label via their participation on “Idol,” claim that Sony has been systematically robbing them of millions of dollars in royalties. The lawsuit was filed after 19 exercised the right to audit Sony’s books pursuant to recording agreements, and the parties couldn’t come to any settlement.
“We did not want to have to file this lawsuit, but Sony left us no choice, so this became necessary to protect our artists,” 19 Entertainment worldwide head of music Jason Morey told The Hollywood Reporter.
19 is being represented in the suit by Richard Busch at King & Ballow, who says, “We have investigated this thoroughly and feel strongly about the claims.” Many in the music industry will recognize Busch as the attorney who represented FBT Productions, the producers behind Eminem’s “Lose Yourself” and other tracks, in a trend-setting 2007 lawsuit against Universal Music Group. The claim there was that UMG should have been treating digital downloads as “licenses” rather than “sales.” After the Ninth Circuit Court of Appeals agreed with that assessment in 2010, it set off a wave of litigation from artists ranging from Rob Zombie to James Taylor. In March 2012, Sony paid $8 million to settle one class action lawsuit. Last month, Warner announced a $11.5 million settlement in its own class action.
Given Busch’s role in the first round of litigation over digital downloads, the latest “Idol” lawsuit could prompt a whole new round over the issue of streaming income. Perhaps the biggest claim in the new suit — both monetarily and in its potential impact on the industry — deals with the alleged underpayment of streaming royalties.
Sony is among the larger music entities that have forged licensing deals with streaming services run by Spotify, Google and Apple. But the lawsuit says that Sony is accounting for the exploitation of master recordings here as “sales” or “distributions” rather than as “broadcasts” or “transmissions.” The distinction might sound like semantics, but it is important. By treating streams as sales, Sony is essentially saying the former are no different than downloads purchased on iTunes or Amazon. As such, Sony would be forking over significantly less money under the terms of the company’s recording agreements — the difference between a 50% royalty share for a “transmission/broadcast” versus a fraction of that for a “sale/distribution.” The plaintiff says the discrepancy has resulted in at least $3 million in damages.
The allegations don’t end there: Sony is also accused of improperly deducting money spent on advertising and videos, incorrectly paying and calculating royalties on compilations and million-plus-selling albums, under-reporting or failing to report synchronization master uses in films and TV shows, and more.